Over $70T of inherited wealth over next decade will widen inequality, economists
theguardian.com
theguardian.com
The classic one is the changes in Sparta’s inheritance system that essentially caused their downfall.
Originally every citizen had an equal plot of land, the economic base that allowed him to be a hoplite (Sparta help ~80% of their population as slaves, helots, as state property). But as Spartan men died in wars, inheritance laws were forced to let daughters inherit and merge estates through marriage, wealth, and land, and thus it all concentrated fast. By Aristotle’s time, nearly half the land was owned by women outright, and the number of citizens had then fallen to a few hundred as citizenship was tied to these land plots. The result was that the city that once fielded the most formidable army in Greece simply ran out of Spartiates to fill the ranks. Perversely, they all kept this going instead of breaking up the consolidated plots, as citizenship was tied to freedom and voting power. So, the less of them there were the better off the rich were, as they had more voting power and wealth at home (wealth was land, as Sparta forbid money in it's borders, well, sorta). So, power domestically was inverse to foreign power. And we all know when countries get into these situations they always go towards domestic power over national security.
Isn't the fact that the ultra rich are using their wealth productively the reason we have growing wealth inequality? Because active money grows faster than inflation, which is why they get richer compared to the rest of us over time.
Or in other words: money grows if you use it. If you just put it in a bank account it slowly erodes away under inflation.
personally I think the only real solution is slowing down by reducing incentives to keep growing money (or stock value) by implementing some kind of tax ceiling in turn slowing down innovation and instead hoping that giving more people the ability to grow (easier access to education, healthcare, opportunity) eventually outweights the disadvantages of having such a ceiling
Billionaires have dozens of other things like the above that makes thos an issue
There is some kind of bizarre world that we live in that the article has a quote from Ramaphosa, the totality of his extraordinary wealth was generated by corruption, on the terrors of inequality.
Hoarding is, generally, not a real problem because it requires believing that wealthy people are not greedy. The problem is that most societies heavily incentivize irrational behaviour through disincentivizing investment. Strangely, these same places also have political cultures that focus heavily on inequality (again, there is no better example than South Africa) because genuine openness tends to be very disruptive politically.
There is no way to square the circle. The solutions are known, the problem is that human nature and political culture tends to prevent those solutions being realised (as it is more politically beneficial to continue to sell people lies: it is this group of people, they are the problem, if we can take their money and give it you then you will be rich).
If a net worth of $2 mil is considered outrageous then surely that kind of salary would be considered equally so.
There should be no wealth tax, but above a certain threshold - there should be a maintenance fee associated with the wealth. I get charged maintenance fee by my mutual funds, for example.
One of the purposes of the government is to protect and secure property... and that is what ultra wealthy are getting for a fraction of what they should be paying.
There is a lot of low hanging fruit.
Arguably capital gains should be taxed at a higher rate than income. But that's not going to happen, because your home's change in value is capital gains.
That rate will not be where you and I live. It will be some tiny foreign government.
And when some of those people say no? That seems like either a short lived con or very quickly we are bombing people.
Why not just literally put a gun to someones head and rob them then? Skip the middlemen. Bombs are expensive as is jet fuel.
Cool, cool. Work for 30 years, save up and have say $3M to retire on, based on stock market at an all-time high. You're not a robber baron or investment banker, just someone who worked a long time and saved and invested. Govt takes $1M away from you, you have $2M now. Market drops 25%. Now you have $1.5M.
Congrats, your "plan" resulted in someone like that having HALF of everything they saved up just gone.
Yeah, yeah, I know, "if you have $1.5M you don't NEED any more money." Sounds like something that only someone with something less than $1.5M would say.
You don't "need" your iPhone, or your flat screen, or whatever. The government should not be in the business of determining what you "need" and taking the rest.
Now that 'progress' is actively optimizing things in a way where large amounts of the public's lives are getting worse, you are going to have to give a better response. Because right now progress is synonymous with improved rent seeking, worse access to food (and food that is now noticeably optimized to be of poorer quality), worse access to housing, worse working conditions, and on, and on.
The benefits of wealth are exercised long before the inheritance can be applied.
Your first home down payment, your education, your wealth generation while being on support by your parents, etc. - will push you off the ground faster, than any inheritance in a world where people easily live to 80-90. Most people hit retirement age, by the time their parents pass away.
Inheritance tax doesn't work anymore, in any case.
It's not the 19th century and we shouldn't try fixing 21 century issues with 19th century remedies.
A yearly tax of a few percent on all capital assets.
Well, not quite.
EU made this easy with the UBO register, it takes just political will.
Agreed.
But isn't that an argument FOR a strong inheritance tax? Because inheritance doesn't actually help your children anyway? That seems like it was your argument.
With that argument taking 100% of the inheritance as tax and taking 0% is exactly the same, as the wealth transfer was done before anyway.
Wealth disparity doesn't grow because wealthy people are allowed to retain their generational wealth or not, it grows because the rest can't build and retain their wealth.
This isn't a zero sum game.
PS: I would also not trust the government or any political body to handle income from the inheritance taxes. So I would rather the children of wealthy people squander their wealth, than a politician transfer that wealth to their patron.
Yeah it does. The way compounding interest works means at some point that your passive accumulation of savings will outpace what most workers can earn as a salary. You can't really combat that by throwing more money at workers.
It's just mathematically impossible to let wealth run rampant in an individual like that and expect everyone to keep up with their limited hours of energy.
>This isn't a zero sum game.
It isn't. But with modern labor habits the billionaires want to make it one. That's why there isn't such thing as an 'earned billionaire'. They take from workers, lobby government to pay less, engage on anti-competitive behavior, or outright commit crimes to get to that point. The best case billionaire merely inherits the wealth and lets it accumulate, but I don't see many people like that these days who also don't fall into the other points.
>I would also not trust the government or any political body to handle income from the inheritance taxes.
Well someone has to. The us government has most things in record, so they are the easiest to audit.
This is more a sign that we need to pay more attention to politics and trustworthy figures who will self regulate. As in, pass laws that hold them and future policy makers in check.
thus the importance of the sovereign fund.
Why? Just "having wealth" isn't important in itself, it's just a number in a computer. So there is something else you are trying to get at. What is it?
> Wealth disparity doesn't grow because wealthy people are allowed to retain their generational wealth or not, it grows because the rest can't build and retain their wealth.
Disparity happens when two groups diverge. That's what disparity means. As long as the richest have a higher growth rate, the disparity grows.
> This isn't a zero sum game.
That's a different conversation though. You talked about wealth disparity, not about quality of living or something. THERE it's not a zero sum game. But in wealth disparity it is by definition a zero sum game.
> I would also not trust the government or any political body to handle income from the inheritance taxes.
But you would trust the wealthy? Ok.. but...
> So I would rather the children of wealthy people squander their wealth, than a politician transfer that wealth to their patron.
So you don't trust the wealthy either?
I don't understand what you are arguing at this point.
And yes, we should "hold back the successful". Taking 99% of a billion dollars still lands someone with a career's worth of savings to tap into. That's how utterly ahead they are. And it's clear they used that power to ransack the nation. So be luck "holding them back" is the only stipulation here.
I'd much rather we have checks in place to stop individuals from accumulating megawealth in the first place (or at least slow it down), rather than relying on an inheritance tax which takes effect long after the accumulation happened.
Yes. And we are already on "too late" mode. So we should go with the 2nd best solution because the best one (actually taxing billionaires) won't work retroactively.
>I'd much rather we have checks in place to stop individuals from accumulating megawealth in the first place (or at least slow it down), rather than relying on an inheritance tax which takes effect long after the accumulation happened.
Both would be nice. I don't see this as mutually exclusive. Though proper wealth taxes will lessen the need for inheritance tax. But not in all cases.
You can perform a "child fund to the parents instead if you need earlier impact. And maybe we will need that as an incentive as 1st world populations decline. But it might not make a difference based on the spending habits of the parent.
So it's, er, probably not a great model case here.
Most 80 year olds know they arent going to live forever and would probably just transfer their assets a little early.
Is it though? I think most very wealthy people are already using more complex structures like trusts and whatnot.
> Moving that level of money already has so many stupulations.
Like what exactly?
>Like what exactly?
In the very brodest sense, anything that involves turning I realizing gains into liquidity will be taxed. Investing it into assets like property will have that taxed, unless you choose to go to very specific areas. Throwing it into a business will jabr capital taxes.
Exceptions are disproportionatly utilized, but there are in fact more ways to be taxed on your money than not. That's why a lot of the current mechanisms lie less in "grab money, get taxed, use it" and more "point to money, get loans, stay in 'debt' and use not your money make money".
Sure, but there is a very very big difference between capital gains tax and inheritence tax. Most proposals for inheritence tax are on the entire value of the property being inherited. Capital gains taxes are just on the difference in value between when you got it and when you sold it.
If every transfer of property behaved like an inheritence tax, the economy would probably screech to a halt as you effectively couldn't sell anything without taking a huge hit.
I don't see the downside unless you think it's fine for children to simply millionaires for being related to one.
Any tax plan that requires people to be stupid in order to be taxed is a bad one because then the only people who get taxed are poor people who can't afford to hire an accountant to figure these things out for them.
The obvious way to close that loophole would be to tax capital gains at the same way as inheritence, but the side effects of that seem disasterous.
> I don't see the downside unless you think it's fine for children to simply millionaires for being related to one.
I think the downside is that the actual affect of the plan would be that really rich people would be unaffected, and if anyone was actually taxed it would be low-mid income people. Thus further cementing inequality.
But America is so thoroughly owned by the wealthy that implementing one of these solutions is not desirable. The legislature in America only works on behalf of the ultra wealthy and any legislation that passes will be to increase the magnitude of the wealth gap.
A lot genuinely have no idea that there's a very high lower limit on inheritance tax... at the same time they hate the ultra rich.
This is genuinely a very schizophrenic country.
There's always loopholes. An internet forum isn't the best place to try and close every hole.
I'd go further and say that "unearned wealth corrupts" is a well known effect, and (apart from the small subset of rich people who do not care about their kids corruption and intrinsic worth apart from them being the vehicle of their dinasty) we see that divestment into charity / foundations are the modern preferred way for inheritance management, both sparing the kids somewhat (being downgraded to a multimillionaire is not a hellish situation) and gifting them cultural influence. A sovereign fund could scratch that itch somewhat.
If you think you’ve seen zany tax schemes, just wait till they try implementing something as crazy as a 100% tax.
There’s also a moral question of why you feel entitled to not just a majority of the fruits of my labors, but apparently all of them.
There's an unproven assumption that somehow the inequality of outcome is 1) unjust, and 2) something to be "corrected."
The first has no foundation other than appeal to emotion to create in-group / out-group tribes ("eat the rich!") to then suggest what end up being power grabs that destroy the middle class and do nothing to the wealthy.
The second item requires destroying value. All economic activity comes from exchanges of value, which is intrinsically tied to time; that irreducible finite quantity to which everyone is subject. We've seen over and over again, when you try to destroy the concept of value, which is subjective and circumstantial for each individual, all you end up doing is causing human misery.
This obsession with taking other people's money rather than enabling opportunities to make your own is unhealthy, destructive, and immoral.
There's decades of research into this if you care to look up wage theft, worker productivity vs compensation, the lobbying against unions and minimum wage and any other labor protections, and the fact that we ruled that it's okay for billionaires to buy politicians.you talk about enabling opportunities, but lobbyists have used it to pull up all the ladders and pay less back to the people. So yes, we're due for a correction.
If you're a millionaire this doesn't really apply to you. Your taxes go up maybe 2-3%. "Wealth tax" is in the realm of 100m and definitely by 1b.
Also, your loins did hot "earn" that money either by popping out of a uterus. Inheritance tax is probably the easiest to push of you can convince people that children aren't entitled to be billionaires by existing.
There's no point paying a fortune to have all the people who created the most value leave your country just so you can reduce a pointless metric, especially when all it does is get the state more money to spend on itself rather than reduce your costs or increase what you get for your costs.
Assuming that the money is all used for altruistic purpose, I could agree with your point. But we know that this money is often used for not so altruistic purposes like investing in PE which asset strip the productive parts of economy or use the money to influence politics and elected representatives via lobbying.
Yup, altruistic job nakers, huh?
In most advanced economies today, that's equity. The ordinary person thinks of wealth as money lying around in the bank, which the rich person refuses to spend on anything useful. And instead either hoards, or spends on luxury things which cause resentment to the remainder.
The real question is for most people today its easier than ever to invest and then give it to their children. Why aren't people doing it?
The median person in the US has about $8k, which is basically enough to cover one emergency.
I've been out of full time work for 2.5 years now and had to slowly dwindle my 401k when emergencies popped up.
I didn't think this community was this isolated from the economy given the hundreds of thousands of tech workers displaced these past few years alone. Take a look at what it's like for non-tech workers and come back to ask that question.
You mean the workers? Why would they leave if inequality is reduced, that would mean their standard of living would increase?
Anyone who wants to leave is free to, people are tired of the threats, just do it already. The people who leave will be spiting their own faces, and the people who stay behind will fill the demand vacuum.
Do you really think a world with extreme power inequality is anything good?
Don't be fooled, those people don't create any value. They could disappear tomorrow and the world would be none the poorer. Quite the contrary in fact. Wealth is created by working, not owning, never forget this basic fact.
moreover this supposes that wealth does not buy political power, which is also blatantly false.
this is the fastest way to hell in modern societies.
But yes it will be sad seeing how many will still defend the rich once there's irrefutable evidence. There's still Holocaust deniers 80 years later after all.
If inheritance isn't there to prune out variants, the virus mutates and propagates.
People who start off wealthy go on to accumulate and centralize even more wealth.
if returns on inherited wealth outperform growth, then the percentage of growth captured by the wealthy grows over time, exacerbating inequality
estate taxes can help mitigate that, but they are "anti-American"
[0] https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce...
Its not like inheritence makes money appear out of nowhere. Every inherited dollar is taken from a rich person who died. The amount of inequality should stay roughly the same as you are just transfering money between rich people. You aren't creating any new money, nor are you concentrating it in fewer hands. Why would inequality increase after inheritence instead of just staying the same?
The returns on wealth after it is inherited isn't going to be higher then the returns that same wealth would have gotten prior to it being inherited. Its still the same amount of money.
The headline is that wealth inequality will go up due to inheritence. Why would it go up over the alternative situation where nobody died and everyone just kept their money.
Take it as meaning that, were inheritance taxed, we could curb the progression of wealth inequality. But these taxes are getting relaxed, and so the issue worsens.
Also, with falling fertility rates, we may see more wealth getting concentrated in the hands of single childs. I am in such a case: I will inherit from both my parents, alone. (Although I am not really looking forward to this day). Here, wealth is getting concentrated in fewer hands through inheritance.
Rich retries with a million dollars and sits on it for 20 years before death. Assuming a very low 3% interest rate, this money makes 800k.
Rich Jr. gets the the 1.8m at age 40. He works 25 years @ a modest 80,000 a year salary as a plumber and doesn't touch the inheritance. Same compound interest. His labor earns him 2 million dollars. His inheritance in that time also earns 2 million dollars.
So Rich Sr's money just sitting at a really low interest rate worked as hard as Jr's 25 years of labor participation. You can argue that Jr could have instead not worked and diversified his portfolio to make more money.
Now let's say Jr dies at 70. Rich 3rd will have 5 million to work with at age 30, and he realizes there's no point in working, even if he could make double the salary as a tech worke. So he day trades and enjoys the fruits of his father and grand-father's labor.
This is 2 generations, and not even the level of money that people really care about throwing heavy taxes on.
>the alternative situation where nobody died and everyone just kept their money.
Why are we thinking about a situation that can't happen? But sure.
Let's say Rich Sr keeps living with his 2M dollars. Jr keeps working and earns 2M in 25 years again, While Sr. "Earns" 2m in interest. The wealth disparity didn't change in this situation if Sr. Just let the money sit longe, but Jr now had to provide his labor just to keep up. He had no options.
Meanwhile, Sr. with his newfound doubled lifespan and no job can be able to do a myriad of things to build more wealth. Start a business, diversify his portfolio instead of letting everything lie in a savings account, buy a beach house that would also accumulate on value, etc. He does anything more than the bare minimum and he's outpacing his son.
Now realistically Sr wont do this as he's focused on taking care of Jr. For after he dies. But Jr can do all of this and he'll be compared to his peers, not his father.
You're right. But the point of the article, and Piketty, is that inheritance policies -- by not taxing (through large loopholes) -- allow the inequality to continue to grow (by virtue of those returns continuing to outperform growth). Estate tax is the opportunity to counter that trend, but we (well, governments at the behest of the wealthy) choose not to.
But you're right in that the title could be more accurately worded; if the wealthy didn't die and continued to hold their assets, inequality would also continue to increase.
This is a non sequitur. There are many situations where returns on inherited wealth outperform growth, and the share of growth "captured" by the wealthy does not grow.
For example, some people give away some or all of their wealth and instead of leaving it to an heir. Inherited wealth is not automatically invested, some of it is spent. Inherited wealth can be split among many heirs, in which case returns would need to be much larger to keep inherited wealth from diminishing.
In addition, while returns on wealth in general might outperform growth, people who inherit wealth and invest it do not always invest it wisely (not part of your non sequitur, but an objection to the argument in general).
Did Piketty address these issues that aren't captured by his rather simplistic formula of "r > g"? Along with the fact that what his theory predicts (increasing share of wealth being inherited) has not been happening? The great fortunes of our time are made, not inherited.
Sure, but that's a small fraction, doesn't really move the needle. Also, much of that is given to wealthy foundations (their own or others, such as colleges) who typically invest it (to make it perpetual). It rarely "trickles down" thus reducing inequality.
> Inherited wealth can be split among many heirs, in which case returns would need to be much larger to keep inherited wealth from diminishing.
How does that math work? If I invest $1M at 5% yield I get $50K. If I break it into 5 tranches of $200K, each yielding 5%, that's $10K each or $50K total.
Sure you may get 5 people with $1B instead of one person with $5B but that doesn't reduce inequality.
Andrew Carnegie was the richest man in the world at the beginning of the 1900's. What does "r > g" say happened to his wealth? What actually happened was that he gave it all away. Many of the richest people in the US have pledged to give away the majority of their wealth. You can't hand wave that away.
We know that "r > g" is not a good model of how the world works because 90% of the time, wealth is dissipated by the 3rd generation. If you want to know how that happens, you need to start adding more information to the model, including charitable giving, spending, taxes, and multiple inheritance.
>> Sure you may get 5 people with $1B instead of one person with $5B but that doesn't reduce inequality
Of course it reduces inequality. It's not particularly equal, but taking money from one person and giving it to multiple people reduces inequality. Take it to the extreme case, if someone with $5B gave $15 to each of the 340 some million people in the US, would that not reduce inequality? If it would, but giving it to 5 people would not, what is the number between 5 and 340,000,000 where it would start reducing inequality?
In addition, your case is only talking about one generation. If the same thing happens for 10 generations, you're talking about 10 million people. After 15 generations, it's 30 billion.
You absolutely can hand wave it away. 1) Yes, Carnegie's actions helped reduce inequality by funding thousands of libraries, but the reason Carnegie stands out is because he was unique in both wealth and largesse. Also, he gave away 90% of his wealth _while he was living_ so not relevant to this discussion about inherence. 2) Pledging and doing are not at all the same. 3) Those who are both pledging and doing (like Gates) are doing so during their lifetimes -- again a separate issue to inheritance.
I haven't done all the math, but I'm very confident that even if you discount charitable giving, you'll find that r > g in the present era (which is the subject of Piketty's book). Look, just looking at my portfolio, it's up nearly 70% in the past 5 years -- that's miles ahead of growth. And that just standard investments, no crypto, options, derivatives, pre-IPOs, etc. The very wealthy are doing much better than that.
> We know that "r > g" is not a good model of how the world works because 90% of the time, wealth is dissipated by the 3rd generation.
I don't know where that number comes from but I would strongly dispute it. Yes, there is very new wealth being made especially in the past 50 years by people like Musk, but most wealth is generational wealth, even in the US (and much more so in Europe and elsewhere).
> If it would, but giving it to 5 people would not, what is the number between 5 and 340,000,000 where it would start reducing inequality?
Please point me to the billionaire who divided up their assets upon their death to more than a few dozen people, and we can talk about how it reduced inequality. Almost all leave it to their heirs or, if generous, to a Trust or Foundation which keeps it invested (Ford, Rockefeller, Harvard, etc.) and give away / use the proceeds over time.
But also the accumulation of wealth drives so many negative issues in society that we want to lessen. And extreme wealth seems to make things even worse.
Other Example: why can't we have income tax thresholds that go all the way up to $1T/year? Why is the absolute top income tax bracket something like $600K? Really? Are we really saying that we should tax someone who makes $600K exactly like we tax someone who makes $600M? or $6B?
And what do you suggest for those that don't have any inheritance?
Lack of housing is a disconnected problem from inheritance taxes.
This assumes that each family only gets a single house. With enough wealth you can buy out all the houses (not considering other factors)
If that is not the case, I unfortunately still didn't get your point.
Only if you don't build enough new homes in places where people desire to live, because you can own a home - just not where you want to actually live.
The reason there is an issue with housing is the same reason why these articles appear declaiming the political risks (notice, Stigliz only says the risk is political...his friends losing office) of inequality.
This will continue forever, it is ingrained in human nature, it is why it took tens of thousands of years for economic growth to happen from the birth of modern human society.
Why are houses so expensive? Alongside challenges and inefficiences related to permits and building (as plenty discussed elsewhere) housing is also used as an investment asset by people with money to invest. This ranges from individuals buying an apartment to rent out, to large investment and private equity firms buying up whole swathes of real estate. When the global money supply is increased (e.g. post-2008 crash, post-Covid, etc.) a lot of it ends up with the rich, who then invest directly or indirectly in asset classes including housing. (Also see how e.g. classic car prices have increased since ~'08).
Until this mechanism is recognised as the cause of asset appreciation and measures are put in place to reverse this trend, the current cost-of-living issues will continue to worsen. Sadly, most politicians are already rich enough to benefit from this situation, and so --in the unlikely event that they even recognise this as a cause-- are unlikely to strongly advocate for measures to address it. Additionally, politics in many countries is too intertwined with big business to mean that such a revolutionary concept would be entertained.
tl;dr: addressing the huge progressive accumulation of wealth by the rich --of which inheritance is one aspect-- is what is needed to address the continual appreciation in so many asset classes, including housing.
What do you mean "until"? It's the core of many of European "dreams".
Take UK for example, where there's a concept called "property ladder". This property ladder is the promise of ever increasing property values, to build wealth(it's a pyramid scheme). This "always appreciating" promise is not just subtextual, it's literally the core of the method for becoming wealthy.
Whole economies in Europe are built around this constant real estate appreciation and first-home-buyers' support.
This is becoming the case in US as well, to lesser extent. US has a much more dynamic property market, than the wealthy Europe.
Politicians will bend over backwards to protect this "dream"... and at this point it is screwing over the new generation.
Sorry if I was unclear; I'm not referring to the "housing ladder" here, but rather that the accumulation of wealth (accelerated in recent years) by the already-rich has driven investment patterns that have in turn driven the appreciation of many asset classes that sit behind the current "cost of living crisis".
If one accepts this premise, then an obvious solution would be wealth taxation, of which inheritance tax is one form. But very few people in the politican/economics sphere are seriously talking about wealth taxation. (There are some, e.g. Gary Stevenson, and Zack Polanski is gently flirting with it as a policy.)
It's in the 263th position, alongside posts from 4 days ago, and keep rapidly going down. Really weird.
But, maybe more inequality does indeed increase the waistlines of economists, as they they find more fodder for paid "analysis".
For those who say this is the only way people get ahead, you are correct but you're missing the point. That shouldn't be the case and it's non sustainable. In the 1990s, the average house price in London was £70k. Now it's >£700k. It doesn't have to be this way. It shouldn't be this way (for a healthy society).
I've come to believe that this century will see a point where there's simply nothing left to exploit, nothing left to transfer from the working class to the ultra-wealthy. And as has always been the case historically, that's going to end with a more violent form of wealth redistribution (eg French revolution, Russian revolution).
10x in 35 years is compounded rate of return of under 7%, which is not far off the average mortgage rate over that period of time. Add in some maintenance and that might even represent a loss in real terms over that period of time.
Wages aren't 10x in that same period. All the increasing house price has done is transfer wealth from the younger generation to the older generation.
The underlying problem for the UK is wages - workers make less in real terms and pensions paid to the older generation go up by the highest of all the rates.
Taxation is the transfer of wealth from the younger generation to the older generation - the older generation paid less in and are getting more out.
People keep saying things without understanding what that means. Only reason why anyone even wants a home is because its profitable to them on the longer run. Else renting works.
Either way the demand for home ownership will be way less if you simply tell people they will make big losses on that purchase.
That said, now imagine how housing works in a world where no one wants to buy a home, but everyone wants to rent one. That is you want to rent a resource which no one is building at the first place.
The big obvious solution is a system like Vienna where ~60% of the housing is supplied by the government.
Oh and if no one wants to buy houses, great. Let the government take them over and then create rental stock, something the UK did until Thatcher came along [1].
You can also differentiate between personal home ownership and so-called "investment properties". That is, you punitively tax hoarding of housing as well as short-term speculation in hoousing. As one example, Switzerland (depending on canton) has pretty high capital gains taxes on housing that tend to decrease the longer you own the house [2].
We have a ton of shortsighted and downright destructive policy to increase house values (eg Prop 13 in California) that are often sold emotively. Prop 13 was sold as not kicking seniors out of their homes so we got a tax policy that essentially froze Disneyland's property tax to 1960s levels.
NYC builds a ton of real estate for no other purpose than allowing non-domiciled billionaires to park their wealth. I, for one, think that owning property in NYC (or anywhere) should make you resident for tax purposes. And the property tax system should be fixed but it's held hostage by upstate homeowners who like their subsidized tax rates on single family homes too much to let anything change.
Relying on private entities to provide houses by being landlords is an absolutely awful system.
[1]: https://www.theguardian.com/lifeandstyle/2024/mar/19/end-of-...
[2]: https://www.ubs.com/ch/en/services/guide/mortgages-and-finan...
It's an unfortunate fact that significant change happens rarely without large convulsions, e.g. after a major war, because I don't see this being sustainable even medium-term.
[0] https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce... and subsequent
One can simply look at historical income taxes in the USA and their progressiveness and conclude that over time taxes tend to regress until some economic calamity or war happens, after which taxes become extremely progressive again for a short while (top income tax rate bracket of 75% to 90%).
See for yourself, it's all there:
https://files.taxfoundation.org/legacy/docs/fed_individual_r...
1: https://www.davidsplinter.com/AutenSplinter-2024-ReplyToPSZ....
2: https://philmagness.com/2014/12/an-empirical-critique-of-tho...
3: https://qz.com/1725562/elizabeth-warrens-economic-advisers-a...
EDIT: Here is the rebuttal for 2 by Piketty himself: http://piketty.pse.ens.fr/files/capital21c/en/Piketty2014Tec... courtesy of andrepd
Who has not been criticize in their methodology? Who do you expect to avoid any amount of "controversies" for such a political subject?
Your comment seems to be pure ad hominem. Also, discarding authors because they're French is kinda stupid: historically, quick advances in a field most often start at one time and place.
It would be like expecting American economists to be very libertarian, or Chinese economists very interventionists. The culture of their countries reflects their ideas.
NB: J'habite en France
Because the politics precede the findings
I think it's important to separate the empirical and analytic part, to which you can apply objective criticisms, to the political part, with which you can agree or not but which should have no bearing on the former part.
Anyway if you want to be honest you can also link to Piketty's rebuttal to the criticism, e.g. http://piketty.pse.ens.fr/files/capital21c/en/Piketty2014Tec...
I agree, there is a difference between the technical and political parts. Sorry if I seemed dishonest, but I cited both the 2014 critique as well as a more general 2024 PSZ critique (from right wing POVs) including other economists who usually post on the same subject of income inequality. I will edit my original comment to include Piketty's rebuttals.
Right now (where i live) you pay a big tax on inheritance, this is ok if you only inherit cash. In 99% of inheritances this is not the case. You inherit family home, a cottage etc. Then you must sell because you cant afford to pay for it. Now the asset is gone forever and the next generation will most likely inherit nothing.
Its really hard to keep anything of value in the family because of this, that one house that was purchased for 60K is now somehow worth 600K (even it has all kinds of problems) and you need to take a loan just to keep it.
By taxing inheritance its sure that decendants that work basic jobs will forever be poor.
Someone who wants to spend an inheritance is going to do it, whether it’s liquid (cash) or marginally less so (real property)
Once you sell it you pay more taxes. Do you think any of the money you got will go to your kids, or even grandkids? Id say in 80% of all cases it will be long gone before that time comes.
This incentivises the rich to split up their fortune, and allows the poor to keep control of objects with emotional luggage.
That said, if the value of your house has grown tenfold, it is most likely because the community added that value. And so I don't think it is necessarily wrong if that same community sees some of that value back.
You are not "earning" something you are continuing to "own" something that was already yours, shared with people who were here and are no longer here.
I only spent about twenty two years in my parent's house (well less, because we moved), but you're making an emotive argument while I was arguing more from a data-driven point of view.
The Irish inheritance tax is more generous to children (325k euro per child is tax free), but even in the UK, my three siblings and I would have paid zero tax. And our inheritance is quite large, lots of people in the UK & Ireland inherit much less.
Like, the ONS data[0] (which covers 2014-16) suggests that most inheritences go to the top quintile in terms of income (which anecdotally matches my experience) so this is a tiny, tiny problem in societal terms.
I get that inheritance tax is very emotive (particularly around family homes), but given that the vast majority of wealth is in property (except for that of the 0.1%), then I think inheritance tax is a pretty good one, and am happy that it's something that my kids will have to worry about, assuming we're lucky enough to leave them anything.
For context, I regard inherited wealth as mostly unfair, as the children of successful people have often had lots of advantages afforded to them already, so I'm not sure why those advantages should compound over generations.
[0]: https://www.ons.gov.uk/peoplepopulationandcommunity/personal...
Note: the ONS statistics are weird, talking about inheritances and gifts interchangeably and the numbers seem far too low. Figure 7 shows the unfairness clearly, IMO.
Ridiculous straw man, because this is like saying income tax should be abolished because minimum wage people can't afford it. Yeah no shit that's why it's progressive. In the case of inheritance, even a 0% bracket until ~1M$ will mean the tax leaves the middle class entirely unaffected while ensuring massive feudal-levels of generational wealth are at least curbed, and turned over to the commons.
This means your 800K asset maybe gives you 650K, and from that sum you still pay the inheritance tax + sales tax (thats usually in the 20% range).
You will likely get somewhere in the 450-500K for an asset that was worth 800K.
This is how to poor will remain poor.
The whole property market in UK is a pyramid scheme, time to realize that.
The whole system is FUBARed.
we all make our own way in the modern world and i feel as a society we try to not just leave it to fate and how gilded the vagina you crawled out of was
What you do with your life is up to you, but having a guardrail can make life just that more pleasant. Life should not be about counting cents and going from pay-check to pay-check.
The inheritance tax has to go somewhere. It could go into science and infrastructure and then everyone gets richer. Or it could be paid out as a dividend, then everyone below the average gets richer. There are many options here. Just saying "inheritance tax bad" without talking about the output side of such a tax is by definition going to be... well.. weird.
So we shouldn't really argue for raising or lower taxes, we should argue for spending it better.
Greed is an innate human trait.
Those are not the same, but too many don't know what's the differrence.
BTW: Most of the world lives under state capitalism, not capitalism, not socialism, not any other form of economic system. The state has an unrestricted claim to any and all of your wealth.
If this were universally the case, open source would not exist.
European social democracies are among the top of the wealthiest countries in the world.
You seem to confuse capitalism with market economy. Germany's social market economy was conceived as an alternative to capitalism; a market economy with strong focus on unions and social fairness/justice. In other European countries is very similar.
Socialism core principles have always been égalite, solidarity and democracy. It's pretty silly to think that a highly hierarchical, unjust and undemocratic system has anything to do with Socialism.
Hint; it doesn't. It might say so on the marketing material ("Socialist Republic!") but that's just that - marketing to fool the numbnuts.
Just a thought.
Argentina (the end game of social democracy) pre-Milei had a huge array of taxes and regulations which lead to the state misusing that money to actually enrich a small elite of politically aligned. Similar things and arrangements (under the form of subsidies to companies) will happen under Trump and levying more taxes will just give more opportunity for corruption.
Hence the proposal by many economists that the only solution is a broad agreement on a global progressive wealth tax, with at least the major blocs of the US and EU on board. See e.g. "A Brief History of Inequality".
The same proposal is also criticized by many economists too, who argue that inequality has not risen as sharply as Piketty's crew claims, or that the bulk of that inequality is linked to the real estate, for which the only solution is build more houses and destroy the capital accumulation of older generation to the profit on newer ones.
1: https://www.brookings.edu/articles/deciphering-the-fall-and-...
But I would argue that the situation in housing is actually a consequence, and not a separate phenomenon, of the broader issue of inequality-driven asset price inflation.
The problem with countries like UK is that real estate is the only way of obtaining, growing and keeping wealth there. And I mean the only.
In France wealth tax was repealed in 2017 I think but will be soon reintroduced under a new form.
I feel like communism is inevitable at this point. People know communism isn't the solution, but they will still vote for it because at least it pretends to stand for equality.
We're going to reach a point of such extreme inequality that even the pretense of equality provided by communism would be welcomed by the majority.
In a way, the pretense of equality sets a floor on inequality; because, in a communist system which calls all humans equal, any actual inequality has to be either hidden or justified... This requires effort. A system which pretends to stand for equality can only become so unequal before it loses its ability to justify itself; then it collapses.
By contrast, our current system makes no claims about human equality, quite the opposite; it exaggerates and propagandizes the inequality of humans and human ability as a means to justify its failures in terms of human resource allocation.
For example, our current system sees homelessness not as a failure of its resource-allocation capabilities but as a kind of efficiency. It does so by dehumanizing the homeless; painting them as lazy and incapable of value-creation; deceptively conflating 'value creation' with 'value extraction' in the process. Our system keeps trying to portray the 'value extraction' endeavors of the entrepreneur class as being on the same level as the 'value creation' of the working class... They will not acknowledge the reality that 'value extraction' is the main cause of wasted human potential.
It is our current system itself which fails to efficiently allocate the most valuable resource in society; people's time and energy. Our current system implies that human life is of such low intrinsic value, that some people aren't even worthy of having a roof over their heads, all while it deprives them of their right to build their own roofs (with regulations).
Our system loves to blame individuals for its oppression and it loves it even more when they blame themselves for it; it seizes any opportunity it can to demonize beaten-down intelligent people who understand the mechanics of its oppression and it idolizes egotistical idiots who have never experienced struggle and who therefore don't have much difficulty in taking full credit for everything (good) which happens to them...
It's not difficult to take full responsibility for your situation when only good things happen to you... But watch how these people behave when things go belly-up. They're off to the Caymans, never to be heard from again... The system is remarkably lenient on them.
Genuinely curious - why isn't communism the solution? And in your opinion, what are some better solutions? I haven't studied much about political/economic ideologies and at this point don't even know where to start. I do agree with some of what you are saying, but I don't understand why communism wouldn't be be a step in the right direction.
"The Road to Serfdom" by FA Hayek[0] is a good start. There's also a Wikipedia page outlining the general criticisms of communism[1]. You can also simply look into the recent history of communist countries.
[0] https://en.wikipedia.org/wiki/The_Road_to_Serfdom [1] https://en.wikipedia.org/wiki/Criticism_of_Marxism
In a large centralized system, those in power are selected from an increasingly large pool of people... Two main characteristics which allow people to gain power include greed and the need for control; these two characteristics tend to override all other characteristics as the pool of candidates increases because the level of competition and desperation increases. Near the center of power, the personal compromises that have to be made to be in such position become significant to the point of 'not being worth it' (for most reasonable people) so those who keep going must have a particularly strong thirst for power and control.
It's difficult to both maintain power and also to do good things; those who try to do good will often sacrifice some of their power to do it; the attempt to do good carries political risks which may be seized upon by one's political opponents who aren't inclined to take such risks.
According to the same people. Passing $1mil to your children is immoral and should be banned.
I suspect they love expensive shiny things and hate their children.